Firm lets small banks get big sums insured

With bank failures making headlines recently, some consumers are looking for assurances that their life savings and retirement accounts are safe.

With bank failures making headlines recently, some consumers are looking for assurances that their life savings and retirement accounts are safe.

One program uses the safety-in-numbers principle to offer that assurance. It's called the Certificate of Deposit Account Registry Service, or CDARS, and it allows individuals, businesses and others to deposit large sums -- more than the $100,000 insured by the Federal Deposit Insurance Corp. -- and yet be certain of its safety.

It is run by Promontory Interfinancial Network, a for-profit financial-services firm in Arlington, Va. The network spreads large deposits among member banks in chunks of just less than $100,000.

Approximately 2,150 banks offer CDARS, including about 50 in Ohio.

Through CDARS, small community banks can compete with the big boys and federally insure deposits of up to $50 million.

"We don't have to be a multibillion-dollar bank to have that security for the customer," said Mark Allio, president of CFBank, which has an office in Worthington, one in the Akron suburb of Fairlawn and two in Columbiana County. "People can go home knowing their money is safe and secure."

Allaying customer concerns is more important than ever for banks. In recent weeks, the FDIC has taken over three banks, including large California-focused IndyMac, and announced that about 90 more are in trouble.

Although CDARS are gaining popularity among smaller financial institutions such as CFBank, which has $280 million in assets, larger banks have not come aboard.

"CDARS have a role to play, and that's for smaller, community banks. It's a way for them to address the issue of whether they have adequate insurance," said Bob Lane, district president for central Ohio at Cleveland-based KeyBank, which has assets of $102 billion.

Here's how CDARS work:

"Before, if you had $1 million and wanted it FDIC-covered, you'd have to go to 10 banks in the Columbus area and put $100,000 in each," said Phil Battey, a Promontory spokesman.

Now, a customer with $1 million can go to a network bank and deposit the entire amount.

"They'd do a CDARS transaction and cut the million into 11 pieces and place it in 11 network banks electronically," Battey said. The customer gets the same interest rate at each bank and gets one statement from the originating bank.

To join the network, banks pay a fee ranging from $5,000 a year for those with less than $100 million in assets to $50,000 or more for those with more than $50 billion in assets. Member banks also pay Promontory a fee based on the size of each transaction.

The program is endorsed by the American Bankers Association. "We felt it was an innovative way to allow banks to offer insurance to their customers with more than $100,000," said association spokesman John Hall.

The program was created in 2003 and has grown steadily.

"We generally have eight to 10 banks a week join," Battey said. "But last week, we had more than 50."

Allio said CFBank customers have deposited about $35 million in CDARS.

"It's a way for municipalities and political subdivisions to get safety and soundness in their deposits and help local economic development," he said. "When you send the money to large institutions, it is diluted and sent all over. We put it back into local businesses, the local housing market."

Newark-based Park National, which has about $6.8 billion in assets, is a Promontory member, but Paul Turner, vice president of treasury, said no customer has signed up for a CDARS account.

He called CDARS one of the bank's many tools. "We have other ways of protecting our customers," he said, listing repurchase agreements and investment securities as options.

For more information and a list of Ohio banks that offer CDARS, visit www.cdars.com.